The second full week of 2026 arrives loaded with catalysts that could set the tone for markets throughout the year. Tuesday brings December's Consumer Price Index report—the last major inflation reading before the Federal Reserve's January 28 meeting—followed just hours later by JPMorgan Chase's Q4 earnings that will kick off bank earnings season. Overlay the dramatic confrontation between Fed Chair Jerome Powell and the Department of Justice, and investors face perhaps the most consequential week since the calendar turned.

Tuesday's Main Event: December CPI

The Bureau of Labor Statistics will release December's Consumer Price Index at 8:30 AM Eastern on Tuesday, providing crucial data on whether inflation's cooling trend has continued. Economists expect a nuanced picture.

Core CPI—which excludes volatile food and energy prices—is forecast to rise 2.7% year-over-year, a slight uptick from November's 2.6% reading (which itself was the lowest since early 2021). Headline inflation is expected to remain steady at 2.7%.

"US consumers probably experienced only a modest pickup in inflation as 2025 drew to a close. That's just a touch more than November, but still well below where we were a year ago."

— Bloomberg Economics preview

The implications for Fed policy are significant. A reading in line with expectations would likely cement bets that the central bank will hold rates steady at its January meeting. A surprise to the upside could reignite concerns about sticky inflation and potentially push rate cut expectations further into the future.

Bank Earnings: The Real Economy Speaks

If CPI tells us about prices, bank earnings tell us about activity. JPMorgan Chase reports Tuesday morning, with analysts expecting earnings per share in the range of $4.93 to $5.01. More importantly, CEO Jamie Dimon's commentary will provide insight into consumer behavior, credit quality, and corporate confidence.

Wednesday brings a trifecta of reports from Bank of America, Citigroup, and Wells Fargo. Thursday rounds out the week with Goldman Sachs and Morgan Stanley.

Key themes to watch across the sector include:

  • Net Interest Income: How are banks managing the transition to lower rates while maintaining profitability?
  • Credit Quality: Are consumer and commercial loan delinquencies stabilizing or worsening?
  • Investment Banking: After M&A volume surged 42% in 2025 to $5.1 trillion, what's the outlook for 2026?
  • Expense Guidance: JPMorgan's stock was pressured in late 2025 over technology spending concerns. Will others follow suit?

Wells Fargo's First Free Year

Among the big banks, Wells Fargo presents a unique story. The company enters 2026 as its first full year without the $1.95 trillion asset cap that has constrained it since 2018. Now in expansion mode, Wells Fargo has authorized a staggering $40 billion share repurchase plan—a signal that management sees significant value to unlock.

The Fed Shadow

All of this unfolds under the shadow of the extraordinary confrontation between Chairman Powell and the Justice Department. While the economic data and corporate earnings are important in their own right, they'll be interpreted through the lens of an institution under unprecedented pressure.

If markets were already nervous about the Fed's policy path, the DOJ investigation adds a new dimension of uncertainty. What happens to rate decisions if the central bank's leadership is distracted by legal battles? What happens to Fed credibility if the investigation drags on?

The Rate Cut Calculus

Coming into the week, markets had largely ruled out a January rate cut. Bond futures showed just 16% odds of action at the January 28 meeting, with those odds rising to 45% by April. December's jobs report—which showed only 50,000 positions added but an unemployment rate that ticked down to 4.4%—reinforced the view that the Fed can afford to be patient.

The Fed's own officials are divided. Governor Stephen Miran has pushed for 150 basis points of cuts in 2026, citing manageable inflation and labor market concerns. Others prefer a more cautious approach. The December meeting produced a 9-3 vote for a quarter-point cut—the most dissents since 2019.

What Success Looks Like

For bulls, the ideal week would feature:

  • CPI in line with or below expectations, keeping rate cut hopes alive
  • Strong bank earnings with optimistic guidance
  • Some resolution or de-escalation of the Powell-DOJ standoff

For bears, warning signs would include:

  • Inflation surprising to the upside
  • Banks flagging credit deterioration or weak loan demand
  • Continued escalation of the institutional crisis at the Fed

Positioning for the Week

Professional investors appear to be taking a cautious stance. The S&P 500's near-zero equity risk premium relative to Treasury yields suggests limited cushion if negative surprises emerge. Record bullish positioning means there's plenty of room for disappointment if the week doesn't deliver.

For individual investors, the week calls for attention rather than action. The data points and earnings reports will provide valuable information about the economy's trajectory. But with so many cross-currents—from inflation to earnings to institutional drama—rushing to conclusions could prove costly.

What's clear is that by Friday, markets will have a much better picture of what 2026 holds. Whether that picture is bullish or bearish depends on the next five days.